Ross Gittins

We know the two great certainties in life are death and taxes, but many thought there was a third: the inexorable rise in consumption of electricity. As the population grew and each of us got a little more prosperous each year, we'd use more power. The mighty electricity industry was built on that certainty.

Except that electricity consumption has been falling for the past four years. To say this has taken the industry by surprise is an understatement. For well over a century – even during the Great Depression – the quantity of electricity used in Australia each year was greater than the year before.

It took the industry and its regulators two or three years to accept the trend was more than just a hiccup on the ever-upward path, which delay probably added to the decline.

There are few aspects of the economy – global or national – where change is more significant, more diverse or more interesting than energy supply and demand – where energy covers coal, gas (conventional and unconventional), petroleum, wind, solar and other renewables. Expect to hear more from me on the topic.

But there are few questions more interesting than exactly why the unthinkable, a fall in electricity consumption, has come about. Short answer: a surprisingly large combination of reasons, although Tony Abbott's crusading against the carbon tax must get some of the credit.

The best attempt to quantify the various factors involved comes from a report prepared by Dr Hugh Saddler, an energy expert with the Pitt and Sherry consultancy, for the Australia Institute. Saddler's modelling covers the years to 2012-13, but we know from reporting this week by Origin Energy and AGL that the fall continued in 2013-14.

Saddler focuses on energy produced and consumed from the National Energy Market, which covers the five eastern states and the ACT, but the decline is occurring also in Western Australia. After peaking in 2008-09, consumption from the national market in 2012-13 was down by almost 8 terawatt hours, or 4.3 per cent.

But that's only half the story. Just as important as why demand has fallen is why it hasn't continued growing, as continued growth in the population and the economy would lead us to expect. Saddler estimates that had demand continued growing from 2004 at its average rate of growth over the previous 20 years (2.5 per cent a year) it would have been 37 terawatt hours more than it actually was in 2012-13.

This shortfall is equal to the output of almost 5000 megawatts of coal-fired generation capacity, the combined capacity of the Bayswater and Eraring power stations in NSW, or Loy Yang A and B and Hazelwood in Victoria.

"All of the decline in consumption has been at the expense of coal-fired generators, with the result that many are now barely profitable," Saddler says.

Greenhouse gas emissions fell by 9.2 megatonnes of carbon dioxide equivalent, about 2 per cent of Australians total annual emissions.

So what has caused our power consumption to fall rather than rise? The biggest single reason is the introduction from the late 1990s of regulations to increase the energy efficiency of refrigerators, freezers and many other residential and commercial appliances, and to increase the energy efficiency of new buildings.

Saddler estimates this explains 37 per cent of the 37 terawatt-hour shortfall from what might have been.

The next biggest part of the explanation is structural change in the economy away from electricity-intensive industries. Over the year to September 2012, three major NSW industrial power users – Port Kembla steelworks, Kurri Kurri aluminium smelter and the Clyde oil refinery – were partly or completely shut down. This explains 10 per cent of the 37 terawatt-hour shortfall.

The evidence also suggests that power consumption by other major industrial users has been little changed over the three years to 2012-13. Saddler estimates that this failure to grow explains a further 14 per cent of the shortfall, taking the total contribution from structural change to almost a quarter.

The next most important part of the explanation is the response of electricity users, particularly residential users, to the higher prices they were being charged. Saddler finds that after 2010 there was "an abrupt change in consumer responsiveness to higher prices".

This was the time when the possible effect of a carbon tax on electricity became a major political issue thanks to the efforts of Abbott and his "sceptic" mates. At the time, retail electricity prices were rising spectacularly, mainly because of a huge increase in spending on upgrading the transmission and distribution networks (poles and wires) to cope with an expected ever-rising peak demand on hot summer afternoons.

Saddler finds evidence to support his argument that all this carbon-tax-related fuss about the high cost of electricity caused many households to be a lot more conscious of what was happening to their power bills and to respond by finding ways to cut their usage – to the extent that they "have managed to completely offset the effect of higher prices on their household budgets by reducing consumption".

This highly unusual jump in the short-run "price elasticity" of electricity explains 19 per cent of the shortfall, he estimates.

He further calculates that the growth in output from rooftop photovoltaic solar and other small, distributed generators accounts for about 13 per cent of the shortfall. This, of course, is a fall in the demand for electricity supplied by the major, mainly coal-fired generators, not a fall in the use of electricity as such.

Saddler notes that for the past three years the annual peak demand has been falling, not increasing, despite the huge investment to cope with ever-rising peaks. When will this additional capacity, which is now built and for which all electricity consumers are paying – and will continue to pay for some years to come – be required, if ever, he asks.

Good question.

Ross Gittins is the economics editor.

140 comments so far

When will this additional capacity, which is now built and for which all electricity consumers are paying – and will continue to pay for some years to come – be required?

One simple answer to this question........plug in electric vehicles.......they are an inevitable, and massive, demand driver which will dominate the growth in on-grid consumption over coming years.....and we turn our backs on enhancing grid capacity and reliability at our peril!

Properly widespread co-ordinated charging of plug in EV's won't impact the peak load, and it's the peak load (also falling) that is constantly used as justification for the over-investment in poles & wires. And in fact with more intelligent strategies, widespread EV use could actually REDUCE the peak demand.

"It is also shown that with judicious EV discharging strategies, there is widespread potential to shave peak loads on the highest demand days by up to 5%, dependant on the day and the geographic region."

Reference: "Spatial Modelling of Electric Vehicle Charging Demand and Impacts on Peak Household Electrical Load in Victoria, Australia" by none other than the CSIRO (who funnily enough had their budget cut by the COALition)

Search for "impact of EV charging on grid site:au" in Google to find this & other research.

Commenter

Alistair

Date and time

August 23, 2014, 9:08AM

By the time electric cars and top up stations are ubiquitous the cost of batteries for domestic storage of solar PV will have fallen to the point where solar PV homes will go off grid so freeing up much of the current domestic electricity usage for electric cars. That is the the problem with just looking selectively at one source of usage you can easily convince yourself that fossil fuel power usage will increase and require increased spending on infrastructure.

Commenter

StBob

Date and time

August 23, 2014, 9:12AM

Recharging electric cars may well increase total consumption but if most of them run overnight, it may have no effect on peak demand.

Commenter

StephenJ

Location

Narellan

Date and time

August 23, 2014, 9:20AM

Electric vehicles rather than increasing peak demand, may have the opposite effect. Electric vehicles could be charged in off peak periods, and used as a household electricity supply during peak periods.

My off peak electricity charge is less than 20% of peak rates, so not only would peak usage go down, the amount paid to electricity companies could drop dramatically as well.

Then of course there is home solar, which supplements the daytime household electricity use, and any surplus stored in the electric vehicle parked in the garage.

Come to think of it, with widespread use of electric vehicles, the days of transmission grids and remote power stations are likely to go the way of the dinosaur.

Commenter

Bobo

Location

Sydney

Date and time

August 23, 2014, 10:01AM

I just got a message from origin energy that I should receive 8% discount on my electricity bill in the future.

When they were politically protesting against the carbon tax they were writing on my bill that it was costing me about $550 extra a year.

You electricity people are liars, con artists and phoney people.

People hate what you have done by pricing many people off the grid and now without power to live their lives daily

Commenter

Bob

Date and time

August 23, 2014, 10:05AM

Abbott and Hockey are the darlings and puppets of the fossil fuel industries.

Commenter

Get Real

Date and time

August 23, 2014, 10:26AM

Alistair, the funny thing is the CSIRO had a small electric vehicle in the late 1970's that it was testing, my mum's friend drove one, and when he would come over we would get the extension cord out and plug it in. Around that time, Melbourne put in parking spaces, I think near the art gallery, which had power points on them for charging the anticipated cars. Growing up, I really thought electric cars would be everywhere by now.

Commenter

EV wating

Location

Sydney

Date and time

August 23, 2014, 10:42AM

Nope - EVs are typically charged at night , at off peak rates, and the vast majority of EV owners would be using solar PV on their roof to offset the cost. PC - you don't actually know any EV owners, do you.In addition, they are likely to be first adopters of battery storage at home, which will lead to more and more people disconnecting from the grid or forming micro grids in their neighbourhoods which are not reliant on the grid.If electricity companies think that EVs are their saviour, they'd better start packing up shop.The gold plated infrastructure is totally wasted, energy use is on a historical , inevitable trend downwards , there may be a short period where Abbott's short sighted abolishing of the carbon tax leads to an increase in demand temporarily but it will be short lived. EVs are more likely to lead to increased investment in battery storage technology ( they already have - witness Elon Musk's "Gigafactory") and so will contribute to the so called "death spiral" for the electricity utilities.